Wagoner County Rural Water District No. 4 Broken Arrow ... · Wagoner County Rural Water District No. 4 Broken Arrow, Oklahoma We have audited the accompanying financial statements

Wagoner County Rural Water District No. 4Broken Arrow, Oklahoma

Financial Statements and Auditor’s Reports

Year Ended June 30, 2014

Audited by

SANDERS, BLEDSOE & HEWETTCERTIFIED PUBLIC ACCOUNTANTS, LLP

BROKEN ARROW, OK

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Board of DirectorsJune 30, 2014

BOARD OF DIRECTORS

Chairman

Arnold Kunze

Vice-Chairman

Tim Haslett

Secretary/Treasurer

Max Brissey

Members

Gary Rogers

Jim Self

BUSINESS MANAGER

Bill Giles

OPERATIONS MANAGER

Rick Lang

BOOKKEEPER

Peggy Pridmore

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June 30, 2014

TABLE OF CONTENTSPage

Board of Directors 1

Table of Contents 2

Independent Auditor’s Report 3

Management’s Discussion and Analysis 5

Independent Auditor’s Report on Compliance and on Internal ControlOver Financial Reporting Based on an Audit of Financial StatementsPerformed in Accordance with Government Auditing Standards 7

Disposition of Prior Year Audit Findings 9

Schedule of Findings and Responses 10

COMBINED FINANCIAL STATEMENTS:

Statement of Net Assets 11

Statement of Activities 12

Statement of Cash Flows 13

Notes to Financial Statements 14

OTHER SUPPLEMENTARY INFORMATION:

Balance Sheet (comparative) 19

Statement of Revenue, Expenses and Changesin Retained Earnings (comparative) 20

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INDEPENDENT AUDITOR’S REPORT

Board of DirectorsWagoner County Rural Water District No. 4Broken Arrow, Oklahoma

We have audited the accompanying financial statements of the business-type activities ofthe Wagoner County Rural Water District No. 4 (the District), Broken Arrow, Oklahoma,as of and for the year ended June 30, 2014, which collectively comprise the District’sbasic financial statements as listed in the table of contents. These financial statements arethe responsibility of the District’s management. Our responsibility is to express opinionson these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in theUnited States of America and the standards applicable to financial audits contained inGovernment Auditing Standards, issued by the Comptroller General of the United States.Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audit provides a reasonablebasis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all materialrespects, the respective financial position of the business-type activities of the District asof June 30, 2014, and the respective changes in financial position and cash flows thereoffor the year then ended in conformity with accounting principles generally accepted inthe United States of America.

In accordance with Government Auditing Standards, we have also issued our report datedSeptember 5, 2014, on our consideration of the District’s internal control over financialreporting and our tests of its compliance with certain provisions of laws, regulations,contracts grants and other matters. The purpose of that report is to describe the scope ofour testing of internal control over financial reporting and compliance and the results ofthat testing, and not to provide an opinion on the internal control over financial reportingor on compliance. That report is an integral part of an audit performed in accordance with

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Government Auditing Standards and should be considered in assessing the results of ouraudit.Accounting principles generally accepted in the United States of America require that themanagement’s discussion and analysis on pages 5-6 be presented to supplement the basicfinancial statements. Such information, although not a part of the basic financialstatements, is required by the Governmental Accounting Standards Board who considersit to be an essential part of financial reporting for placing the basic financial statements inan appropriate operational, economic, or historical context. We have applied certainlimited procedures to the required supplementary information in accordance with auditingstandards generally accepted in the United States of America, which consisted ofinquiries of management about the methods of preparing the information and comparingthe information for consistency with management’s responses to our inquiries, the basicfinancial statements, and other knowledge we obtained during our audit of the basicfinancial statements. We do not express and opinion or provide any assurance on theinformation because the limited procedures do not provide us with sufficient evidence toexpress an opinion or provide any assurance.

Our audit was conducted for the purpose of forming opinions on the financial statementsthat collectively comprise the District’s basic financial statements. The combining andindividual fund financial statements have been subjected to the auditing proceduresapplied in the audit of the basic financial statements and, in our opinion, are fairly statedin all material respects in relation to the basic financial statements taken as a whole on thebasis of accounting generally accepted in the United States.

Sanders, Bledsoe & HewettCertified Public Accountants, LLP

September 5, 2014

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RURAL WATER DISTRICT NO. 4, WAGONER COUNTY

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2014

Our discussion and analysis of the Rural Water District No. 4, Wagoner County’s financialperformance provides an overview of the District’s financial activities for the fiscal yearended June 30, 2014. Please read it in conjunction with the District’s financial statements thatbegin on page 11.

FINANCIAL HIGHLIGHTS

The District’s total operating revenues exceeded total operating expenses by$1,920,216.

The District had total investments of $661,838 and earned a total of $1,839 in interestin 2013-14. Interest rates continue to be minimal due to economic conditions.

Membership numbers continued to be strong in 2013-14, with total users exceeding10,000 at fiscal year-end. Substantial growth of the District is projected to continue.

A rate increase was approved in 2011, effective 9-1-11, to keep up with the risingcosts of water, chemicals, materials and supplies.

Using This Report

This report is presented in a format consistent with the presentation requirements of theGovernmental Accounting Standards Board (GASB) Statement No. 34, as applicable to theDistrict’s basis of accounting.

Basis of Accounting

The District has elected to present its financial statements in the accrual basis of accounting.According to the accrual basis, revenues are recorded when earned and expenses arerecognized when incurred. This policy is in accordance with generally accepted accountingprinciples.

The Financial Statements

One of the most important questions asked about the District’s finances is, “Is the District asa whole better off or worse off as a result of the year’s activities?” The statement of Assets,Liabilities and Net Assets, the Statement of Revenues, Expenses and Changes in Net Assets,and the Statement of Cash Flows report information about the District and about its activitiesin a way that helps answer this question.

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These three statements report the District’s net assets and the changes in them. You can thinkof the District’s net assets – the difference between assets and liabilities – as one way tomeasure the District’s financial health or financial position. Over time, increases or decreasesin the District’s net assets are one indicator of whether its financial health is improving ordeteriorating. You will need to consider other nonfinancial factors, however, such as changesin water rates paid or charged and the condition of the District’s water system, to assess theoverall health of the District.

The District has only one type of fund or activity, which is defined as Business-typeactivities. This is considered a proprietary fund. This means the District charges a fee tocustomers to help it cover all or most of the cost of certain services it provides.

Fixed Assets

At June 30, 2014 the District had $22,647,453 invested in fixed assets, net of depreciation,including land, buildings, the water system, vehicles and equipment. The District purchasedsome fixed assets in 2013-14, including minor water system improvements, vehicles, andelectronic meter reading equipment, increasing total fixed assets by $215,325.

Long-Term Debt

The District is indebted to Oklahoma Water Resources Board on four notes obtained forextensive water and sewer systems and extensions, one note from Rural Development, andone other CDBG note. The outstanding principal balance owed on the notes decreased from$14,864,716 to $13,152,566 during the 2013-14 fiscal year.

Economic Factors and Next Year’s Budget and Rates

The District will continue to accelerate payments on their long-term debt when possible.

The District’s operating budget for fiscal year 2014-15 will remain much like previous yearsbudgets.

Contacting the District’s Management

This report is designed to provide our customers and creditors with a general overview of theDistrict’s finances and to demonstrate the District’s accountability for the money it receives.If you have questions about this report or need additional financial information contact theDistrict Office at 9816 S. 239th East Ave., Broken Arrow, OK 74014 or call (918) 258-2331.

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INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVERFINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS

BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED INACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Board of DirectorsWagoner County Rural Water District No. 4Broken Arrow, Oklahoma

We have audited, in accordance with auditing standards generally accepted in the UnitedStates of America and the standards applicable to financial audits contained inGovernment Auditing Standards, issued by the Comptroller General of the United States,the accompanying financial statements of the Wagoner County Rural Water District No.4 (the District), Broken Arrow, Oklahoma, as of and for the year ended June 30, 2014,and the related notes to the financial statements, which collectively comprise theDistrict’s basic financial statements and have issued our report thereon dated September5, 2014.

Internal Control Over Financial ReportingManagement of the District is responsible for establishing and maintaining effectiveinternal control over financial reporting. In planning and performing our audit of thefinancial statements, we considered the District’s internal control over financial reportingin order to determine our auditing procedures that are appropriate for the purpose ofexpressing our opinion on the financial statements, but not for the purpose of expressingan opinion on the effectiveness of the District’s internal control. Accordingly, we do notexpress an opinion on the effectiveness of the District’s internal control over financialreporting.

Our consideration of the internal control over financial reporting was for the limitedpurpose described in the preceding paragraph and was not designed to identify alldeficiencies in internal control that might be material weaknesses or significantdeficiencies and therefore, material weaknesses or significant deficiencies may exist thatwere not identified. We identified no deficiencies in the internal controls that weconsidered to be material weaknesses.

A deficiency in internal control exists when the design or operation of a control does notallow management or employees, in the normal course of performing their assignedfunctions, to prevent, or detect and correct, misstatements on a timely basis. A material

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weakness is a deficiency, or combination of deficiencies, in internal control such thatthere is a reasonable possibility that a material misstatement of the District’s financialstatements will not be prevented or detected and corrected on a timely basis. A significantdeficiency is a deficiency, or a combination of deficiencies, in internal control that is lesssevere than a material weakness, yet important enough to merit attention by thosecharged with governance.

ComplianceAs part of obtaining reasonable assurance about whether the District’s financialstatements are free of material misstatement, we performed tests of its compliance withcertain provisions of laws, regulations, contracts and grants, noncompliance with whichcould have a direct and material effect on the determination of financial statementamounts. However, providing an opinion on compliance with those provisions was notan objective of our audit and, accordingly, we do not express such an opinion. The resultsof our tests disclosed no instances of noncompliance that are required to be reportedunder Government Auditing Standards.

The purpose of this report is solely to describe the scope of our testing of internal controland compliance and the results of that testing, and not to provide an opinion on theeffectiveness of the District’s internal control or on compliance. This report is an integralpart of an audit performed in accordance with Government Auditing Standards inconsidering the District’s internal control and compliance. Accordingly, thiscommunication is not suitable for any other purpose.

Sanders, Bledsoe & HewettCertified Public Accountants, LLP

September 5, 2014

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WAGONER COUNTY RURAL DISTRICT NO. 4Disposition of Prior Year Audit Findings

June 30, 2014

There were no prior year audit findings.

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WAGONER COUNTY RURAL DISTRICT NO. 4Schedule of Findings and Responses

June 30, 2014

Section 1 – Summary of Auditor’s Results:

1. An unqualified opinion was issued on the financial statements.

2. The audit disclosed no reportable conditions in the internal controls.

3. The audit disclosed no instances of noncompliance.

Section 2 – Findings relating to the financial statements required to be reported inaccordance with GAGAS:

NONE

ASSETS:

Current Assets: Cash and cash equivalents 2,094,989$ Investments 661,838 Current portion of receivables 455,944 Prepaid assets 93,337 Total current assets 3,306,108

Noncurrent Assets: Restricted cash- Sinking funds for debt service 157,692 Capital Assets- Land 301,890 Buildings 138,703 Plant, water and sewer systems, net 21,972,507 Automobiles and equipment, net 234,353 Total noncurrent assets 22,805,145

Other Assets: Loan costs, net of depreciation 119,936

Total Assets 26,231,189

LIABILITIES:

Current Liabilities: Accounts payable 422,787 Accrued liabilities 27,000 Current portion of long-term debt 907,122 Total current liabilities 1,356,909

Noncurrent Liabilities: Long-term debt 12,245,444

Total Liabilities 13,602,353

NET ASSETS:

Invested in capital assets, net of related debt 9,494,887Unrestricted assets 3,133,949

Total Net Assets 12,628,836$

The accompanying notes to the financial statements are an integral part of this statement

WAGONER COUNTY RURAL WATER DISTRICT NO. 4Statement of Net Assets

June 30, 2014

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Operating Revenues: Water and sewer sales 4,865,471$ Other income from operations 568,885 Total revenue from operations 5,434,356

Operating Expenses: Water costs and chemicals 578,577 Advertising 15,713 Professional fees 16,228 Repairs and maintenance 652,928 Office 56,194 Postage 72,547 Salaries and payroll taxes 1,065,022 Contracted services 45,327 Director fees 8,832 Dues and licenses 55,642 Equipment rental 4,210 Insurance 105,215 Employee insurance 366,219 Travel 6,108 Utilities 334,614 Retirement 28,310 Leak detection 31,535 Automotive 70,480 Uniforms 439 Total expenses from operations 3,514,140

Operating Income (Loss) 1,920,216

Non-Operating Revenues (Expenses): Interest income 1,839 Interest paid on long-term debt (435,252) Depreciation expense (898,233) Amortiziation expense (31,063) Total Non-Operating Revenues (Expenses) (1,362,709)

Change in Net Assets 557,507

Total Net Assets, beginning of period 12,071,329

Total Net Assets, end of period 12,628,836$

The accompanying notes to the financial statements are an integral part of this statement

WAGONER COUNTY RURAL WATER DISTRICT NO. 4Statement of Activities

For The Year Ended June 30, 2014

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Cash Flows from Operating Activities:

Receipts from customers 5,452,315$Payments to employees (1,065,022)Payments to vendors (2,447,010)

Net Cash Provided by Operating Activities 1,940,283

Cash Flows from Financing Activities:

Sale (purchase) of fixed assets (215,326) OWRB loan proceeds received 1,585,000 Principal paid on long-term debt (3,297,151) Interest paid on long-term debt (435,250)

Net Cash Provided by (used in) Financing Activities (2,362,727)

Cash Flows from Investing Activities:

Liquidation of investments (25,996) Decrease in sinking fund 666,731 Interest earned on investments 1,839

Net Cash Provided by (used in) Investing Activities 642,574

Net Increase (Decrease) in Cash 220,130

Cash and cash equivalents, beginning of period 1,874,859

Cash and cash equivalents, end of period 2,094,989$

Reconciliation of operating income (loss) to net cash provided by operating activities: Net Operating Income (Loss) 1,920,216$ Adjustments to reconcile net income to net cash provided (used) by operating activities: Change in assets and liabilities: (Increase) decrease in accounts receivable 46,012 (Increase) decrease in prepaid insurance (395) Increase (decrease) in accounts payable (34,485) Increase (decrease) in accruals 8,935

Net cash provided by operating activities 1,940,283$

statement.

WAGONER COUNTY RURAL WATER DISTRICT NO. 4Statement of Cash Flows

For the Year Ended June 30, 2014

The accompanying notes to the financial statements are an integral part of this

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WAGONER COUNTY RURAL WATER DISTRICT NO. 4Broken Arrow, Oklahoma

Notes to the Financial StatementsJune 30, 2014

Note A – Significant Accounting Policies

Basis of Accounting

The accrual basis of accounting is followed for all accounts. Revenues are recorded whenearned and liabilities are recognized when incurred. This policy is in accordance withgenerally accepted accounting principles.

New Reporting Standard

In June 1999, the GASB issued Statement No. 34 “Basic Financial Statements andManagement’s Discussion and Analysis for State and Local Government.” Thisstatement establishes new financial reporting requirements for state and localgovernments throughout the United States. It creates new information and restructuresmuch of the information that governments have presented in the past.

Cash and equivalents

The District’s cash accounts at June 30, 2014 are detailed as follows:

1st National Bank, Coweta, Ok-Operations account 298,001Reserve account 1,619,901Credit Card account 558OWRB debt service account 16,271E-check account -Payroll account -Water plant account -Rural Development account 207,074Sewer account -Debt service account 126,277

Less: Outstanding checks (173,193)

Total Cash 2,094,989$

OWRB Debt Service:Bank of Oklahoma- Debt service accounts 157,692$

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Note A – Significant Accounting Policies – cont’d

Investments

The District’s investments are detailed as follows:

Edward Jones, Tulsa, Ok-Money Market 525$Government Bonds 334,363Certificates of Deposit 276,950

First Bank & Trust, Wagoner, Ok-Certificate of deposit no. 17106 50,000

Total Investments 661,838$

Collateral Pledged

Deposit Categories of Credit Risk

(A) Insured by Federal Deposit Insurance

(B) Collateralized with securities held by the pledging financial institution’s trustdepartment or agent in the District’s name

(C) Uncollateralized

Bank Carrying(A) (B) (C) Balance Amount

Cash 500,000$ 1,768,182 2,268,182 2,094,989Investments 300,000 361,838 661,838 661,838

Total 800,000$ 2,130,020 0 2,930,020 2,756,827

Category

Accounts Receivable

Billings for accounts receivable at June 30, 2014 were $455,944. No allowance fordoubtful accounts was computed because the effect of bad debts on the financialstatements is not considered material.

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Prior Year Information

Prior year financial statement information is included in the other supplementaryinformation section for comparative purposes only. No opinions are issued on theseamounts, and are included as memorandum.

Retirement and Deferred Compensation Plans

The District has no formal retirement plan, but does offer employees a qualified Section457 Deferred Compensation Plan. The District matches employee’s contributions up to$200 per month. There are no post-employment benefits provided.

Risk Management

The District is exposed to various risks of loss related to torts; theft of, damage to, anddestruction of assets; errors and omissions; injuries to employees; and natural disasters.The District carries commercial insurance, including workers compensation, for risk ofloss. Settled claims resulting from these risks have not exceeded commercial insurancecoverage in any of the past three fiscal years.

Fixed Assets

Fixed assets are valued at cost, depreciation is computed by use of the straight-linemethod. The estimated useful lives of these assets are as follows:

Land n/aOffice furniture & fixtures 5 yearsEquipment & tools 5 yearsTransportation equipment 5 yearsWater & sewer system 40 yearsBuildings 25 yearsComputer equipment 3 years

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The fixed asset information for the District is shown below:

6/30/2013 6/30/2014Amount Additions Deletions Amount

Land 301,890$ - - 301,890

Buildings 276,916 - 276,916

Water & sewer sys. 33,300,940 124,168 - 33,425,108

Office equipment 215,991 4,526 - 220,517

Vehicles and equip. 668,860 86,631 - 755,491

Const. in progress - - - -

Total Fixed Assets 34,764,597 215,325 - 34,979,922

Less: Accumulated Depreciation (11,434,236) (898,233) - (12,332,469)

Total 23,330,361$ (682,908) - 22,647,453

Subsequent Events

Management has evaluated subsequent events through September 20, 2014, which is the datethe financial statements were available to be issued and have determined that no additionalinformation needs to be added to the financial statements.

Note B – Long-Term Debt

Long-Term Debt consists of six long-term notes; four to the Oklahoma Water ResourcesBoard, one to Rural Development and one to Wagoner County Economic DevelopmentAuthority (CDBG).

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Note B – Long-Term Debt – cont’d

2014 2013

Oklahoma Water Resources Board note payable, issued for $4,625,000, dated 2004, variable interest, paid in monthly payments of $32,385, until paid; -$ 2,410,000

Oklahoma Water Resources Board note payable, issued for $6,752,000, dated 1999, variable interest, semi-annual payments of $225,019, until paid; 2,397,723 2,814,549

Oklahoma Water Resources Board note payable, issued for $1,585,000, dated 2014, variable interest, semi-annual payments, until paid; 1,585,000 -

Oklahoma Water Resources Board note payable, issued for $860,000, dated 2006, variable interest, paid in monthly payments of $1,892, until paid; - 185,150

Oklahoma Water Resources Board note payable, issued for $390,000, dated 2000, variable interest, paid in monthly payments of $1,325, until paid; 228,950 243,750

Rural Development note payable, issued for $5,000,000, dated 2006, 4.125% interest, paid in monthly payments of $21,550, until paid; 4,448,007 4,521,467

Oklahoma Water Resources Board note payable, issued for $6,200,000, dated 2010, variable interest, paid in monthly payments of $33,921, until paid; 4,481,635 4,676,050

CDBG Note with Wagoner County Economic Development Authority, 0% interest, payable in $208 per month; 11,251 13,751

Less: Current maturities of long-term debt (907,122) (990,209)

Total Long-Term Debt 12,245,444$ 13,874,508

June 30,

JUNE 30,(memo only)

ASSETS 2014 2013Current Assets: Cash and cash equivalents 2,094,989$ 1,874,859 Investments 661,838 635,842 Accounts receivable 455,944 501,956 Prepaid insurance 93,337 92,942 Total current assets 3,306,108 3,105,599

Restricted Assets: Sinking funds for debt service 157,692 824,423

Fixed Assets: Land 301,890 301,890 Buildings 276,916 276,916 Water distribution system 16,589,628 16,465,460 Water plant 8,448,795 8,448,795 Sewer system 8,386,685 8,386,685 Office equipment 220,516 215,991 Vehicles and equipment 755,492 668,860 Total fixed assets 34,979,922 34,764,597 Less: accumulated depreciation (12,332,469) (11,434,236) Total fixed assets (net) 22,647,453 23,330,361

Other Assets: Loan costs (net of amortization) 119,936 150,999

Total Assets 26,231,189$ 27,411,382

LIABILITIES AND FUND EQUITYCurrent Liabilities: Accounts payable 419,990$ 454,475 Accrued payroll tax 2,797 1,176 Accrued interest on long-term debt 27,000 19,686 Current maturities of long-term debt 907,122 990,209 Total current liabilities 1,356,909 1,465,546

Long-Term Debt, less current maturities: Notes payable 12,245,444 13,874,507

Total Liabilities 13,602,353 15,340,053

Fund Equity: Investments in capital assets, net of related debt 9,494,887 8,465,645 Retained earnings 3,133,949 3,605,684 Total fund equity 12,628,836 12,071,329

Total Liabilities and Fund Equity 26,231,189$ 27,411,382

WAGONER COUNTY RURAL WATER DISTRICT NO. 4Balance Sheet June 30, 2014

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(memo only)2013-14 2012-13

Revenue from Operations: Water and sewer services 3,681,750$ 4,084,972 Sewer services 1,183,721 1,156,712 Benefit units 248,424 193,850 Installation fees 100,504 79,947 Other income 219,957 410,095 Total revenue from operations 5,434,356 5,925,576

Expenses from Operations: Water costs and chemicals 578,577 455,646 Advertising 15,713 14,959 Professional fees 16,228 58,302 Repairs and maintenance 652,928 530,588 Office 56,194 34,393 Postage 72,547 50,095 Salaries and payroll taxes 1,065,022 1,021,646 Contracted services 45,327 32,873 Director fees 8,832 7,954 Dues and licenses 55,642 65,576 Equipment rental 4,210 3,877 Insurance 105,215 84,791 Employee insurance 366,219 390,100 Travel 6,108 4,848 Utilities 334,614 326,463 Retirement 28,310 30,885 Leak detection 31,535 12,679 Automotive 70,480 83,285 Uniforms 439 5,086 Total expenses from operations 3,514,140 3,214,046

Net Income (Loss) from Operations 1,920,216 2,711,530

Non-operating revenues (expenes): Interest earnings 1,839 1,594 Interest paid on long-term debt (435,252) (473,950) Depreciation expense (898,233) (887,651) Amortiziation expense (31,063) (31,063)

Total non-operating revenues (expenses) (1,362,709) (1,391,070)

Net Income (Loss) 557,507 1,320,460

Fund equity, beginning of period 12,071,329 10,750,869

Fund equity, end of period 12,628,836$ 12,071,329

Statement of Revenue, Expenses and Changes in Retained Earnings For The Year Ended June 30, 2014

WAGONER COUNTY RURAL WATER DISTRICT NO. 4

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Wagoner County Rural Water District No. 4 Broken Arrow ... · Wagoner County Rural Water District No. 4 Broken Arrow, Oklahoma We have audited the accompanying financial statements